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State P rogram of F orced I ndustrial- I nnovative D evelopment for 2010-2014

State P rogram of F orced I ndustrial- I nnovative D evelopment for 2010-2014. Astana 2 2 February 2010. System of state planning. Strategic Development Plan of Kazakhstan untill 2020. State Program of Forced Industrial - Innovation Development. Other state programs.

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State P rogram of F orced I ndustrial- I nnovative D evelopment for 2010-2014

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  1. State Program of Forced Industrial-Innovative Development for 2010-2014 Astana 22 February 2010

  2. System of state planning Strategic Development Plan of Kazakhstan untill 2020 State Program of Forced Industrial-Innovation Development Other state programs Regional development programs Sectoral programs The strategic plans of state bodies 2

  3. 1. GDP growth by 50% from 2008 2. Labour productivity increase in manufacturing industry by 50 %, and in separate sectors by 100 % TARGETINDICATORS 3. Increased proportion of non-oil and gas exports by 40% 4. Reduction of energy intensity of GDP no less than 10% from 2008 5. Increase of active enterprises up to 10 % from number of operating enterprises 3

  4. WHAT TO DEVELOP ? PRIORITY DIRECTIONS NEW INNOVATIONS(2010-2014) • Metallurgy and manufacture of metal products • Oil refining and oil and gas infrastructure • Chemical and pharmaceutical industry • Agro-industrial complex • Defense industry • Construction industry and production of construction materials • Transport and infocommunications • Engineering industry • Uranium industry • Light industry • Tourism • Space activity Modernization of Existing Enterprises • Maintenance of productivity growth • Creating and improving infrastructure (e / energy, pipelines, roads) • The high level of performance (80-100% of the world leaders) • High value added • Export-orientation • Competitiveness in the regional market Creation of new high-performance enterprises Selective support of enterprises in the “economic future” • Innovativeness • Improving telecommunications infrastructure • Influence on productivity increase in traditional sectors 4

  5. WHERE TO DEVELOP? The scheme of rational distribution of productive capacities Map of the balanced development of industries, infrastructure and resource bases Long-term plans for development of FEZ, and industrial zones Budgeted balance sheet of energy resources (electric power, oil, gas, coal) Budgeted balance sheet of the development of mineral-raw material base, water and land resources Budgeted balance sheet of labor forces Plans for the development of pipeline, rail, road, sea and air transport infrastructures 5

  6. HOW TO DEVELOP? The new approaches to the basic support policies Improving the business environment: need of a "new wave“ of entrepreneurship Development of innovation and promotion of technological modernization: focus on productivity 5 1 Competitive professional personnel training: from stability to mobility Infrastructure and resource provision: Global expansion 6 2 Direct investment: Kazakhstan is the best place for investment in the region Technical regulation: creation of quality infrastructure 3 7 Trade policy: aggressive export, Kazakhstan is a regional broker, an expert on Asia Fee policy: medium-term stability, enabling business planning 8 4 6

  7. INTEGRATED SUPPORT PROGRAM Republican level Regional level 1 2 3 4 Program Investor 2020 Productivity 2020 Export 2020 Business Road Map2020 Basic Operator Ministry of Economic Development and Trade of the Republic of Kazakhstan, Akims (local mayors) Ministry of Industry and New Technologies of the Republic of Kazakhstan Ministry of Industry and New Technologies of the Republic of Kazakhstan Ministry of Industry and New Technologies of the Republic of Kazakhstan Mission Creation ofconductive conditions for attracting direct investment in non-oil and gas sectors of the economy. Increasing productivity of existing enterprises and creation of new industries. Market domestic products in foreign markets. Development of entrepreneurship in the regions Target group Investors Big and medium-sizedenterprises Big, small and medium-sizedenterprises Small and medium-sizedenterprises 7 ПФИИР

  8. Approaches to realization 8 INVESTMENT 2020

  9. FIRST DIRECTION STIMULATION OF INVESTMENTS 9

  10. HIGH COMPETITION for FDI in WORLD MARKET 4,824 N/a 1.8 33 Bulgaria 6,605 6.4 3.9 45 Kazakhstan Ukraine Russia Hungary 2,934 N/a 7.3 15 Saudi Arabia 15,322 2.9 10.9 41 India China Poland 13,845 5.5 12.0 76 Azerbaijan Slovakia Georgia 17,583 6.5 9.6 36 Estonia Competition for Kazakhstan Natural Resources / GDP1 Ведение бизнеса2 Labour costs per hour (USD) Geographical proximity3 Nominal GDP / capita (USD) 18,488 54.5 16 17,301 N/a 11.0 22 11,826 12.3 3.8 120 8,513 15.0 3.3 70 3,931 8.9 2.6 145 3,258 9.7 2.2 83 1,035 4.2 1.0 122 Sources: WMM; EIU World Data; World Bank, 2008 1 The estimated contribution of natural resources in GDP, including the extraction of natural resources, electricity, gas, water 2 The World Bank ranked by the degree of ease of doing business 3 Geographical proximity to Kazakhstan 10

  11. INVESTMENT CLIMATE AND OPPORTUNITIES • Kazakhstan GDP rate is 2 times larger than the economies of other countries in Central Asia combined • Kazakhstan has joined the Customs Union with Russia and Belarus, i.e. market with a population of more than 170 million people. A combined GDP of 2 trillion USD is opening to investors • Investment climate in Kazakhstan is the most favorable in the CIS • Kazakhstan has the most liberal tax regimeamong the countries of the Customs Union 11

  12. STATE SUPPORT MEASURES • Exemption from payment of customs duties on imports of equipment, components and spare parts, raw materials in accordance with the Law of the Republic of Kazakhstan "On Investments". • State natural grants in accordance with the Law of the Republic of Kazakhstan "On Investments" • Favorable tax regime and granting of preferences (within the SEZ and individual Investment agreements) • Ensuring minimum long-term public order and order of national companies • Support measures under the Road Map "Business - 2020" • subsidy assistance of interest rates on loans • partial loan guarantees • development of industrial infrastructure • staffing 12

  13. SECOND DIRECTION INVESTORS SERVICE SUPPORT / ASSISTANCE IN ATTRACTING INVESTMENT 13

  14. WORLD EXPERIENCE Currently, investment promotion agencies are successfully operating in more than 160 countries.IPA is an important mechanism to attract FDI, which acts as a key element in shaping the image of the country as a recipient of investment, improving investment climate and attracting foreign investors. 14

  15. Tools: Informational and promotional activities to promote investment opportunities of Kazakhstan (business forums, road show, printed materials, news reports in international media) Informational and analytical activities (accounting function, database, research) Measures to accompany foreign investors National investment interactive web site of the Republic of Kazakhstan and Investment Atlas of the Republic of Kazakhstan Operator for work with foreign investors – «KAZNEX INVEST» CUSTOMER SUPPORT DIRECTIONS • For Kazakh business • Searchfor investor • For foreign investors: • Search for Kazakhstani partner • Accompany investor • Organization of meetings with the government representatives • Presentation of update information on projects and the law 15

  16. Approaches to realization PRODUCTIVITY- 2020 16

  17. GUIDELINES AND FACILITATING TOOLS OF DEVELOPMENT OF LABOUR PRODUCTIVITY 1.Optimization of productivity and business processes The budget programs on financing of management technologies introduction, service support through the design officeand technology parks 2. Accelerating and cheapening of new products assimilation Innovation grants to purchase technology, conductresearch and development work, service and financial support through the design office Assistance for enterprises to improve their effectiveness through cost reduction Innovation grants for conducting research and development work, patent, service support through technology parks,design office services, tax preferences 3. Cheapening and accelerating of development process of own new products 4. Information support Service support through technology parks, instructional materials “To assist enterprises” 17

  18. WORLD EXPERIENCE IN SUPPORTING DEVELOPMENT OF LABOUR PRODUCTIVITY ACTIVITIES In Canada there is a policy of development of labour productivity in three key directions: • Tax subsidies for investment in new equipment – renovation of basic funds is the key driver • The creation of technology transfer centers for the rapid spread of the best world technologies and practices in the country • Stimulation of the labor migration to provide rapidly growing regions with skilled workers In other regions of the country there are grant programs through which companies can apply for reimbursement of services to 40% of the costs for purchasing services from consulting companies, which increase labor productivity (industries – IT, agribusiness, biotechnology, manufacturing) Finland is grant funding of innovation, aimed at qualitative improvement of development of labor productivity • Reimbursement of expenses on implementation of researches and developments for enterprises • Promotion of cooperation among the scientific organizations and private sector 18

  19. GRANTS Principle of grants co-financing Grants for project feasibility study Share of the state: 80%, Duration: 6 months Development result: project feasibility study, contracts of intent, memorandum Terms: Guarantee of own funds (banking, escrow) 20% Share of state: 80%, Duration: 24 months Development result : The act of introducing Terms: Guarantee of own funds (banking, escrow) 20%, a preliminary agreement on implementation Grant for research and development work Existing types of grants Grant for technology transfer Share of state : 80%, Duration: 12 months Development result: The act of introducing Terms: Guarantee of own funds (banking, escrow) 20%, Productivity increase Grant for patenting Duration: 12 months Development result: patent Terms: Positive report, payment to patent office Grant for startup Share of the state: 90%, Duration: 12 months Development result: start-up company Terms: Presence of innovative ideas New types of grants Grant for staff development Share of the state: 80%, Duration: 6 months Development result: new skills in staff, qualification certificates Terms: Guarantee of own funds (banking, escrow) 20% Grant to expand product line Share of the state : 80%, Duration: 12 months Development result: new products, services Terms: Guarantee of own funds (banking, escrow) 20% 19

  20. MODEL OF DESIGN OFFICE ACTIVITY National company/ major consumer of engineering products Determination of requirements for engineering products Acquisition of design-technical documentation Goods nomenclature Search for companies to develop new products JSC «Center for Engineering and Technology Transfer» andDesign office Technical preparation of production Technical documentation Engineering services Certification of products Manufacturing of quality products under the agreement with the National company Machinery enterprise 20

  21. MODEL OF TECHNOLOGY PARK ACTIVITY Analysis of needs of the innovative ideas customers Conducting of the Forum with participation of business and government representatives Formation priorities Search for potentially commercialized innovative ideas Competition and selection of applications with involving of expert committee Business consulting, providing with office, assistance in patenting Formation of a pool of prospective projects for industrial output Commercial elaboration of innovative ideas Providing of additional high-tech services by technology parks Services of laboratory and engineering complex Free for innovators in technology park Financing of innovative projects and start-up companies Venture financing and attracting of investors Launching of new products 21

  22. Approaches to realization Export - 2020 22

  23. SERVICE SUPPORT OF EXPORT FIRST DIRECTION 23

  24. SERVICE SUPPORT TOOLS OF EXPORT About 350 companies are involved in the sphere of Kazakhstan's non-oil and gas products In which annual stable exporters are 260 companies • Detailed analysis of structure of countries import on the level of 4 signs CNFEA (Definition of potential commodity markets) • Positioning of Kazakhstan's concrete products in the market at the level of 10 signs of CN FEA (Basis for export strategy of the enterprise) Analytical support of exporters ЭКСПОРТЕР • Trading missions in foreign countries • Meeting «Sellers and Buyers» • Selection of specialized foreign exhibitions • Negotiations with potential buyers Search of partners and buyers • Composition of a database of purchasers • Estimation of conformity of production to requirements of purchasers • Participation in humanitarian exhibitions Promote the humanitarian aid in the market • Calculation of logistics of optimal export routes • Instructions on procedures of customs registration • and preparations invoice documents Optimal routes of export deliveries • worldwide distribution of the annual directory of export production • Presentation of domestic brands in foreign countries • Placing in specialized foreign catalogues Target informing of foreign buyers Informational aid • Instructional materials «an aid for exporters» • Countries export guidebook In 2009 at the allocated budget of $2 millions with assistance of KAZNEX it concluded export contracts for the sum $120,0 millions (fiberglass pipes, fabricated metals, a fillet of a pike perch, sanitary production, textiles, etc.) 24

  25. EXPORT GRANTS Second direction 25

  26. ГРАНТЫ ЭКСПОРТЕРАМ Size of grants: 50% of confirmed expenses, but not more than established maximum limits of the applicants Examples: Product registration abroad, expenses connected with registration procedures Expenses for registration of MPin Uzbekistanis$16 thousands./ per 1 unit of drug. JCSChimfarmregistrated 50 drugs (Pentalgin, Analgin, Tsitramon, Ascorbic acid and others.). Value of export – $4,945 ml. Product certification abroad,expenses connected with certification procedures JCS JVBelkamit – receiving of certificatesASME (США), NB – $23,6thousands,Value of export – $2,0 ml. (Vessels, capacities, metal structures) Opening of the foreign representations, trading Points, expenses under the office maintenance Compensation of expenses LLP Tekstiline – opening representative Switzerland$30,5 thousand. Value of export – $2,0 mln. (ready sportwear). Participation in the specialized exhibitions, expenses on rent of the area, Registration payment JSC «Aktyubrentgen» - Participation in an exhibition Public health services – 2009, Moscow city - $20,2 thousands. Value of export -$1,256 ml. (X-ray devices). Goods promotion abroad, branding, goods advertising JCSRakhat – realization of PR-campaigns, Expenses for working out and Design of packing (for entering in China market) – $27,7 thousands,Value of export – $4,209 ml. (candies, chocolate) 26

  27. MECHANISMS OF GRANT PROVISION Ministry of Industry and New Technologies of the Republic of Kazakhstan – PROGRAM ADMINISTRATOR JSC «KAZNEX» - Program operator 1. The announcement of competition in mass-media 2. Reception of requests and expertise of documents 3. Preparation of the conclusion for the Commission 4. Signing contracts with exporter IECvia grants (MINT, MF, MEDT, MA, deputies of government, NDP «NurOtan», Non-governmental organization «Forumindustrialists», TIC, NEC «Атамекен») 1. Consideration of the conclusions 2. Decision-making I. Conclusion II. Sollution II. Compensational contract I. Request Challenge: To provide transparency mechanism Granting of export grants Exporter of non-oil and gas economy 27

  28. TRADE FINANCING, INSURANCE AND CREDITING THIRD DIRECTION 28

  29. ОGENERAL CONDITIONS OF FINANCIAL SUPPORT • Funding stream: trade • Amount of financial backing: • - JSC “Kazakhstan Export Credit Insurance Corporation” up to $ 1 ml. • Terms:from 12 till 18 months • Interest rate : CIRR (2,38%) rate + rate of insurance (1,5%)+ rate of the bank (3%) =6,88% • Potential participants of the program: existing and newly established export-oriented enterprises, priority - SMEs. • 10 pilot projects will be implemented in 2010 ________________________________________________________________ Funding stream: preexport • Amount of financial baking: - JSC“Entrepreneurship Development Fund“DAMU” up to $ 1 ml.; - JSC“Development Bank of Kazakhstan”over $ 1 ml. • Interest rate: rate (7%) + rate of the bank (до 3%)+ remuneration of operator (up to 2%) = 12% • 5 pilot projects will be implemented in 2010

  30. MECHANISM FOR FINANCING EXPORTERS COMMERCIAL FINANCING AND RECURRENCE SCHEME FOR OBTAINING CREDIT 1. Export contract with delay in payment Exporter (apply to the bank with shipping documents) Importer 3. Delivery 5. Payment on shipping documents 4. Insurance1,5% year. Margin of the bank3% year. Bank of exporter Bank of importer JSC “Kazakhstan Export Credit Insurance Corporation” 2. Letter of credit 4. CIRR tied deposit= 2,38% year. • Cost for Bank of importer = 1,5%(insurance)+2,38%(CIRR)+3%(margin of bank of exporter) = 6.88% • Advantages: • unsecured lending • 2-fold reduction in lending rates • Receipt of export earnings immediately in connection with shipment of goods • Stimulating demand of foreign buyers • JSC “Kazakhstan Export Credit Insurance Corporation”will be reorganized in Export and Credit Agency from January 1, 2012

  31. WORK ON PROJECTS: TOOLS OF ACCOUNTING AND MONITORING OF PROJECTS Selection of projects Business initiative • Export-orientation; • Manufacture products with high added value ; • High productivity of labour; • Reduction of energy consumption ; • Development of Kazakhstani content; • Development and implementation of innovations and advanced technologies . Accounting system Map of Industrialization Constantlyupdated list of priority investment projects with elements of monitoring, management and identifying the necessary point measures of state support. Implementation Republican Management Center Mobilization of labour and financial recourses; Personal control of timely implementation of investment projects put into operation this year.

  32. STRUCTURE OF PROJECTS DATABASE Private initiative Budget infrastructure projects Projects of national holdings Projects with direct foreign investment Database of investment projects - 324 projects Kazakhstan’s Map of Industrialization - 162 projects Regional Map 65 projects Republican map 97 projects Attractive projects – 162 projects

  33. Main page of the Base Map of Industrialization. It reflects the summary on investment projects of the Republic of Kazakhstan – dynamics of projects introduction per year, key indicators of projects’ realization, deployment of projects in Kazakhstan

  34. EVOLUTIONARY DEVELOPMENT OF ECONOMY Preparatory period 3 stage. Formation of the base of «future economy» Aerospace, Biotechnology, IT, Alternative Energy Preparatory period 2 stage. Creation of new economy (high-production of works) Start of the construction of new ventures with world leading companies participation in the niches identified by the master - plans. Stimulus measures( FEZ development, an increase in non-oil and gas export, foreign investors) has been elaborated. Contribution to productivity growth Preparatory period 1stage. Modernization of base economy (increase of depth of raw materials processing) Ensure put in operation of building and planned to construct republican and regional investment projects Industry and regional development programs has been developed and approved. Laws on industrial policy, FEZ, etc. have been developed. 2011 2012 2013 2014 2010 2009

  35. Approaches to realization ROAD MAP - 2020 35

  36. General scheme of realization • Aim of the program is the creation of permanent job for account of entrepreneurship development in the regions • Ministry of Economic Development and Tradeof the Republic of Kazakhstanallocatesgeneral limitsof financial packing for each region • Limits defines on the basis of : 1) share of the region in population size; 2) share of the region in output of SME products. • Local executive bodies allocate general limits on directions of program realization on its own authority (with the approval of Ministry of Economic Development and Trade) • subsidization of interest rates on loans • partial loan guarantees • development of industrial infrastructure • service support to conduct of business • training, youth practices and social jobs (component will be introduced in 2011) 36

  37. Basic principals of the program • Decision on projects funding is made by the financial organizations • Regional Coordinating Council makes a decision only on the possibility of subsidies and guarantees • The entrepreneur can be provided with integrated support within all tools of the program 37

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